Canada’s new financial services ombudsman says she would welcome regulatory changes giving the organization more power to enforce its decisions — but notes that such changes would come at a cost.
The Ombudsman for Banking Services and Investments, or OBSI, is an impartial organization that serves as an alternative to costly legal battles by resolving disputes between banks or investment firms and their customers.
But although OBSI can recommend that firms compensate clients up to $350,000, companies are under no obligation to abide by the organization’s decisions.
OBSI’s only enforcement tool is its “name and shame” mandate, which allows it to go public with its findings if a company refuses the arbitrator’s recommendations.
However, Sarah Bradley — the woman chosen to head up the organization after long-serving ombudsman Douglas Melville stepped down last spring — says that system contains weaknesses.
“Nobody is really happy with naming and shaming,” said Bradley, the former chairwoman and CEO of the Nova Scotia Securities Commission, in one of her first interviews since taking the helm of OBSI in September.
For consumers, the lack of teeth means no compensation may be paid. For the financial services industry, publishing investigation details leaves all firms “tarred with the same brush,” Bradley said.
“Binding authority, or the ability to make enforceable recommendations against firms, would, I think, be beneficial to the vast majority of our stakeholders, but we do have to also keep in mind that it will come at a cost,” said Bradley.
“It will result in a little bit more formality to our process. It may increase cost somewhat.”
Bradley says OBSI and its industry members are currently considering whether such changes should be made.
“We are looking at it,” she said. “I think for there to be an amendment or an adjustment to that system is going to require co-operation and buy-in from all stakeholders.”
Until late 2012, a firm had only refused OBSI’s recommendations once in its 17-year history. Since then, the ombudsman has faced more than a dozen refusals, a fact that Bradley attributes to a backlog of difficult to resolve complaints stemming from the global financial crisis.
“When, as an organization, we decided to confront and overcome and clear that backlog, it meant closing those cases, despite the fact that there was not an acceptance of our recommendations,” said Bradley.
OBSI has been working to strengthen its relationships with the financial services industry following a period of tension that saw two of its large member firms — TD Bank (TSX:TD) and Royal Bank of Canada (TSX:RY) — ditch the organization in favour of another arbitrator.
Bradley says sluggish case-processing times stemming from the backlog was among the chief concerns cited by the two banks and a number of other members who have considered leaving the organization — an issue that the arbitrator has since resolved.
“We took the concerns that were voiced by our stakeholders very seriously,” said Bradley.
“TD and RBC shared their reasons for departure with us and it led to a period of reflection and very significant process improvements. What’s emerged from that is that we have, now, a much more robust and efficient system for handling complaints. We do not have a backlog.”
That could change given recent market turmoil stemming from the Chinese stock market crash and lagging commodity prices.
Dispute resolution services often see an uptick in complaints when markets turn south, said Bradley. So far, the arbitrator hasn’t seen the volume of complaints rise in any identifiable way — but Bradley says OBSI is bracing itself for the possibility.
“A key goal for our organization is to be ready.”